Insurers Should Be Left Free to Discriminate Based on Your Genetics

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A recent NPR story described efforts to extend the Genetic Information Nondiscrimination Act (GINA) to long-term care insurance providers. GINA, passed in 2008, prohibits health insurers from taking into account genetic information about you when deciding what coverage to offer you and at what price. The goal of GINA was to prohibit insurers from charging a higher premium to those whose genetic markers suggest they may develop a costly disease down the road, e.g., cancer.

Risk assessment is the bread and butter of insurers on a free market. The more accurately insurers can price risk, the better premium they are able to offer you than their competitors. Gaining and evaluating the best data available on potential risks, therefore, is a crucial activity.

On a free market insurers would typically charge higher premiums to individuals they judge more likely to file claims because the insurer will likely have to pay out more for those customers. When insurers are barred from charging higher premiums to higher-risk individuals, they have to make up costs elsewhere — mainly by charging higher premiums to lower-risk individuals, i.e., those who are less likely to file claims.

Accordingly, in health insurance on a free market, we would expect insurers to charge a higher premium to those they judge more likely to incur costly medical expenses because insurers will likely have to pay out more in claims for them. When insurers are forbidden from doing this, they have to make up the costs by charging higher premiums to those who are less likely to incur medical expenses. Under such a scheme, those less likely to get sick are forced to subsidize the coverage of those more likely.

Forced subsidization — such as that instigated by GINA — is common in government-regulated health insurance pools. Rate bands and community rating laws, for example, have the same effect by requiring insurers to turn a blind eye to factors such as age, health status, family medical history, gender, etc. (By contrast, insurance, if left unregulated, does not involve subsidization — each policyholder pays a premium reflective of the individual risk the insurer has to take on to cover that person).

Now, as the NPR story reports, there are calls for the government to force long-term care insurers to ignore genetic information when pricing policies. For example, genetic tests can reveal if you have a greater risk of developing Alzheimer’s disease in old age. Right now long-term care insurers in most states (some already forbid it) can utilize this information to potentially charge a higher premium to someone who tests positive for the associated genetic markers—studies show these individuals are 50% more likely to enter nursing homes, which long-term care insurers must pay for.

But once insurers are prohibited from using this information, they will be forced to spread the cost across all of their policyholders, thereby charging higher premiums to those less likely to develop Alzheimer’s.